Connie Lee Insurance Co. is warning Congress that it could lose its triple-A rating unless it's allowed to expand beyond the higher education sector, according to Congressional aides familiar with the bond insurer's lobbying effort.
"They said, ~We have concerns that in the long term, our portfolio is very limited and the paper we have to take is such that we may be perceived as a greater risk, and our triple-A rating may be at risk at some point,'" one committee aide who has met with the company said yesterday.
The aide, who asked not to be identified, stressed that Congress is not fearful that Connie Lee is about to be downgraded, despite the company having raised the prospect in recent meetings. He said the examination of the company is part of the continuing effort to make sure the insurer is sound.
"There's no congressional intent to signal that Connie Lee is in trouble," he said.
The loss of its triple-A rating would call into question the ability of Connie Lee to continue meeting even its current limited mandate, which is to insure college and university bonds whose ratings are not high enough to attract insurance from private-sector companies.
Connie Lee executives, including the president and chief executive officer, Oliver Sockwell, have been meeting with aides to the House and Senate education committees in recent days and were not available to comment yesterday.
Standard & Poor's Corp., the only agency that rates Connie Lee, recently affirmed the company's AAA rating and in an accompanying report made no mention of potential downgrades. Richard P. Smith, managing director of insurance rating services at Standard & Poor's, reiterated that assessment in an interview yesterday.
"The triple-A rating that we maintain on Connie Lee today is not contingent on any changes to their business plan or business strategy," Smith said.
For several years, Sockwell has lobbied hard for an expansion of Connie Lee's mandate. But the latest effort, which seeks permission for the company to back primary and secondary school deals, is apparently the first time the company has injected the threat of a rating downgrade into the debate.
In addition to his attempt to expand into the primary and secondary school sector, Sockwell has also circulated draft legislation that would allow Connie Lee to act as a guarantor of various types of infrastructure debt, according to congressional sources who have seen the document.
Ironically, as part of his effort to convince lawmakers that Connie Lee is the appropriate vehicle to handle infrastructure work, Sockwell has argued that the company, far from being at risk of losing its triple-A, is fiscally strong.
Speaking last month at a conference sponsored by the Department of Transportation, for example, Sockwell argued that Connie Lee would be profitable even without any expansion of its mandate, according to several sources who attended the conference.
Last year, Sockwell sought a broad expansion of Connie Lee's mandate as part of the Education Act of 1992. Insurance industry executives fought hard against the perceived invasion of their turf, and Connie Lee settled for a compromise that allowed the company limited access to higher-rated education bonds if the private-sector companies rejected them.
The new effort has again sparked angry responses from Connie Lee's would-be competitors in other sectors of the market. Many believe Connie Lee's congressional mandate confers the implied backing of the federal government to bond issues it insures, giving Connie Lee an unfair advantage.
Several competitors blasted Sockwell for the method by which he is attempting to insert the mandate expansion into upcoming legislation.
Sockwell is lobbying congressional aides to add an amendment to a bill that will be voted on in the House and Senate by unanimous consent. That means Congress must vote on the package as a whole, without provisions for deleting or debating individual components like the Connie Lee amendment. It is extremely unlikely Congress would vote down the entire education bill, which includes important technical amendments to last year's Education Act, simply to kill the provision affecting Connie Lee, sources familiar with the legislation say.
"In 1992, [Sockwell] tried to sneak legislation through and now he's trying to do the same thing again," said Robert J. Genader, a senior executive vice president at AMBAC Indemnity Corp. "Oliver just doesn't like to debate the issues in public."
Genader said that, as part of the compromise measure approved last year, Congress instructed the General Accounting Office to study whether an expansion of Connie Lee's mission would be warranted and whether the company was meeting its existing mandate.
Genader said congressional action on the matter should wait at least until the GAO releases the report, which is not expected for at least another six months.
Ann C. Stern, president of Financial Guaranty Insurance Co., and David H. Elliott, president of Municipal Bond Investors Assurance Corp., echoed Genader's sentiments.
"We believe that any discussion of expansion of Connie Lee's authority should be held in an open public forum," Stern said. "This is an issue of industry concern and all perspectives should be considered."
The full Senate last week passed by unanimous consent the technical amendments bill without a provision for Connie Lee's expansion. But in an extremely unusual parliamentary move, the measure is now in a pre-conference committee where staff members from the House and Senate can add any new amendments, including the Connie Lee proposal, over the next several weeks.
